The Israeli Ministry of Finance intends to reduce tax exemptions granted to retirement pensions as part of its efforts to reduce the budget deficit while increasing military expenditures and the entry of the Lebanese front into the direct line of war with Israel in a development of the war that began in the Gaza Strip about a year ago.
The Israeli economic newspaper Globes reported that the Ministry of Finance proposed imposing taxes on advanced training funds, which were considered a tax-exempt savings program, as part of a series of radical measures aimed at reducing the financial deficit to 4% next year, while military expenditures continue to increase on the rise. The intensity of the confrontations on several fronts leads to the expansion of the war on Gaza.
According to the Israeli economic newspaper Globes, the ministry interpreted this step as preferring to encourage long-term saving through retirement funds. Tax breaks amounting to 24 billion shekels ($6.5 billion) were granted annually, but the draft budget refers to a proposal to reduce tax breaks promised to pension savers.
Exemptions
The newspaper pointed out that there are currently many tax exemptions for pension savings for employers and employees. During the accumulation (saving) phase, pension savings are exempt from capital gains tax, and in the withdrawal phase after reaching retirement age, partial exemption is granted on pension payments.
In 2024, the exemption reached 52% of the amount due in the monthly pension payment (currently up to 9,430 shekels, or $2,546), exempt from income tax, and according to a commitment made by the Ministry of Finance more than 10 years ago, the percentage is scheduled to rise to 67% in In 2025, but the Israeli Ministry of Finance is seeking to undo the increase in the exemption.
It is noteworthy that until 2012, tax exemptions were 35% of the amount due upon reaching the pension, and in order to encourage retirement saving, it was decided that the percentage would gradually rise to 67% by 2025.
Impact on retirees
According to calculations by retirement planning expert Ron Keshet, with a monthly pension of 10,000 shekels ($2,700), the additional tax would be 192 shekels ($52), or 2,298 shekels annually ($620), and on a monthly pension of 20,000 shekels. And 45 thousand shekels ($5,401, 12,153 dollars) per month, the additional tax will be 5,746 shekels ($1,552) per year.
“Hundreds of thousands of people will have to adjust their retirement plans,” Keshet says. “The damage is enormous. Some of the damage cannot be seen in normal tables and calculations, because many people do not fall into the normal categories.”
How does Israel’s budget benefit?
According to Finance Ministry estimates, this reduction would bring in an additional 400 million shekels ($108 million) as of 2025, the newspaper reported.
The newspaper reported that, as happened after the proposal to impose a tax on advanced training funds, the head of the Histadrut (General Confederation of Labor in Israel) Arnon Bar-David announced that he would not allow a reduction in tax benefits on pensions.
The Ministry of Finance has already tried several times to reduce pension benefits to no avail, and it is still unclear whether the ministry is intent on implementing the measure this time, or whether the proposal is a bargaining chip that must be abandoned in negotiations with the Histadrut on other matters, such as freezing sector wages. General.
